Want To Enforce Your Arbitration Provision? Then Say It Loud And Clear (And Unmistakably)!

So, your franchise agreement has an airtight arbitration provision...right? It probably says that if any disputes arise out of your franchise agreement, then they must be arbitrated (rather than litigated). But what happens when creative plaintiff's counsel argues that the arbitration provision itself is unenforceable? Does your arbitration provision require that question to be arbitrated?

A recent California case provides a unique side by side comparison of two arbitration provisions: one that passed the drafting challenge, and one that didn't, requiring the franchisor to litigate rather than arbitrate the enforceability of its arbitration provision.

Franchisor Dickey's Barbeque Restaurants, Inc. ("Dickey's") was sued by franchisees alleging fraud and violations of California's Franchise Investment Law and other laws. Meadows v. Dickey's Barbecue Restaurants Inc., No. 15-cv-02139-JST (N.D. Cal. Nov. 12, 2015). The franchisees also asked the court to declare that the arbitration provisions in their franchise agreements were unenforceable (thus justifying litigation).

The Language

The case involved two different franchise agreements, with two different arbitration provisions.

The first provision (which we'll call the "Hammer Provision") broadly required arbitration of disputes "arising out of or relating to" the franchise agreement.

The second provision (the "Scalpel Provision") went into greater detail, encompassing disputes

arising between the parties in connection with, or arising from, or with respect to (1) any provision of [the franchise agreement] . . . ; (2) the relationship of the parties; (3) the validity of [the franchise agreement] . . . or any provision thereof ....

The Standard

Under federal law, courts apply a "clear and unmistakable" standard when deciding whether "gateway" questions of arbitrability should be decided by an arbitrator or by a court. In other words, if parties want an arbitrator to decide whether a dispute should be arbitrated, the contract must indicate this intention "clearly and unmistakably." If the contract doesn't meet this threshold, the court - and not the arbitrator - will decide that primary question.

Of course, courts will look to the language of the contract to determine whether the parties' intent to delegate is "clear and unmistakable." But they will also consider the parties themselves. If the court determines that one party is "unsophisticated" it may be more difficult to show clear and...